lucky said:

this is really driving me nuts.

I was trying to use simple numbers. I had asked for 5-7 year CDs.

Then I would be very angry that I was pushed into 12 or 16 year zeros.

As I mentioned before (as did someone else), I believe long-term zeros

are a HORRIBLE investment in the current interest rate mileau. A

12-year zero will lose 12% of its value for every percentage point

increase in interest rates and a 16-year zero will lose 16% of its

value for every percentage point increase in interest rates. I would

question your rep very hard about why he did what he did and I would

strongly think about selling these things and putting your money into

other investments (and quite possibly taking your money to another

broker). Though I suppose I'd wait until I found out exactly what the

17% drop in value immediately after purchase was all about.

BTW, who is the issuer of the zero?

Actually there are 2 Zero Coupons.The rep always talked about what they

would be at maturity.

1..The first amount debited from the account was $12,500 on 6/25/2003. This

Zero coupon matures on 1/21/2019 at $25000. The value dropped immediately

to $10,187. On the Ed Jones sheets it does not mention interest rate

although the representative said it was 0.0454 which would take $12,500 to

$25000 in that period

I can't think of what could cause that $2,317 (18.5%) gap. Have you

asked the broker/brokerage? What did they say? The only thing I can

think of would be the bid/ask spread plus your broker's mark-up. But

an 18.5% combined spread and markup?

In any case, growing from $12,500 to $25,000 in 15.5 years does indeed

give an interest rate of 4.57%.

By contrast, with some searching you can find a 5-year CD which yields

around 4.00%. With such an instrument you'd only have your money

locked up for 5 years and have no risk of principal loss.

2.The second amount debited from the account was $25,000 on 6/25/2003. This

Zero coupon matures on 5/1/2015 at $42000. The value dropped immediately

to $20,656. On the Ed Jones sheets it does not mention interest rate

although the representative said it was 0.0445 which would take $25000 to

$42000 in that period.

Again, I have no explanation for the $4,444 (17%) gap unless it is the

combined spread and markup.

Seems to me that 0.058% would be the interest to take $10, 187 to $25000.

Seems to me that 0.061% would be the interest to take $20,656 to $42000.

That's basically correct -- however, you paid $12,500 for the first

bond, not $10,187 and you paid $25,000 for the second one, not

$20,656. So 4.54% and 4.45% are the proper interest rates to

consider since that will be the return on the money you actually

put up to purchase these things.

As I said, my guess is that the approximately 18% difference in both

cases represents the combination of the effects of the bid/ask spread

on the bonds (many bonds are very thinly traded, which is one of the

reasons I ask about who the issuer is) and your broker's mark-up.

Have you asked them about the gap? What did they say? I further

believe the spread+markup is the case because the broker quoted you a

yield based on the $12,500 or $25,000 figures -- i.e. what you

actually did pay for the bonds.